Mortgage rates stabilized over the past week, but their recent ascent may create challenges for home buyers who are already feeling the pain of high home prices.
The 30-year fixed-rate mortgage averaged 3.18% for the week ending April 1, up one basis point from the previous week, Freddie Mac reported Thursday. It’s the seventh consecutive week in which the benchmark mortgage rate has climbed, and the rate now stands at the highest level since June 2020.
The 15-year mortgage and the 5-year Treasury-indexed hybrid adjustable-rate mortgage both remained unchanged over the past week, at 2.45% and 2.84% respectively.
Mortgage rates are still quite low from a historical perspective, but their recent climb has real financial implications for today’s home buyers.
The jump in mortgage rates over the past two months means that buyers will spend an additional $93 per month on their mortgage payments, said Realtor.com senior economist George Ratiu. That equates to roughly $1,100 per year, or around $33,000 over the life of a 30-year loan.
First-time buyers find it impossible to compete
“Many first-time buyers are finding it impossible to compete against repeat buyers with considerable equity from their prior home or all-cash institutional investors willing to waive all contingencies,” Ratiu said. “The increase in mortgage rates is adding yet another obstacle for these home buyers to overcome.”
Already there are signs that some buyers are calling it quits in today’s housing market. At the start of 2021, home-buyer demand sat 25% above pre-COVID levels, Freddie Mac chief economist Sam Khater said in this week’s rates report. Today, demand is only 8% above pre-COVID levels.
“Although mortgage rates remain low, we are beginning to see a pullback by those looking to enter the housing market,” Khater said. “This is confirmation that while purchase demand remains strong, the marginal buyer is feeling the affordability squeeze resulting from the increases in mortgage rates and home prices.”
The pullback in demand might end up being a good thing for the buyers who do remain in the housing market. In January, home prices notched their largest annual gain since 2006, according to the latest edition of the S&P CoreLogic Case-Shiller home price index. But this report reflects transactions that were signed in November and December, when mortgage rates were falling to record lows.
The slower competition caused by rising mortgage rates will tamp down the pace of home-price growth, according to a report from CoreLogic. “Slowing competition is likely to take some wind out of the market’s sails, slowing the home price-growth rate by about a half by the end of the year,” CoreLogic deputy economist Selma Hepp noted in the report.